TRI/TRIL - an arbitrageur's dream

When the two shares began trading separately on 17 April and the UK shares (stock symbol TRIL) lagged their Canadian counterpart (stock symbol TRI) by a significant margin logic suggested it would only be a matter of time before they eventually settled at a similar level, since both represent an equal investment in the same assets.

“But for reasons that escape the company and have left investors scratching their heads, the gap between the two has lingered longer than expected - nearly a month...” the newspaper said.

“With that in mind, arbitrageurs are buying the UK-traded Thomson Reuters PLC shares, while shorting Thomson Reuters Corp on the Toronto Stock Exchange, hoping to capitalize on the gap.”

Short selling involves borrowing and then selling shares in a company in expectation of buying them back at a lower price and profiting on the difference.

The Globe and Mail said that once exchange rates are factored in the London shares have been trading at roughly 15-20 per cent less than the Toronto listing.

Company executives acknowledged the discrepancy at the new company’s annual meeting last week in Toronto. But chief financial officer Robert Daleo declined to guess why the discount exists, the newspaper said.

“We do know that there are a lot of shorts that were put on the Thomson stock that have to be unwound and they have to do it over time, so it could take a while,” he was quoted as saying.

“Markets are generally rational, so it may take a little while longer,” he said. “How long? We have no idea. We do know that [the UK price] doesn’t represent the true intrinsic value of the company.”

One arbitrage player who has taken a position in both shares hoping to profit when the gap narrows is New York-based money manager Glazer Capital. Its president, Paul Glazer, is reported to have written more than 80 letters to executives of 14 large institutional investors in Canada, hoping to prod them into buying the UK shares.

“Given that the Canadian and UK shares are, by design, economically equivalent to each other, it defies all financial theory that the shares of one holding company should trade at a 20-per-cent-plus premium to the others that are just as easily obtained,” the newspaper quoted the letter as saying.

“It is hard to explain why a holder of [the Toronto listing] could not sell these shares and buy a 20-per-cent larger interest in the same company by using the proceeds to buy [the UK traded] shares.” ■